Monday, October 25, 2010

But in the short term -- and perhaps for much longer -- it may have no real impact at all.

The Environmental Protection Agency has ruled that gasoline blended with 15 percent ethanol may be sold for use in cars and light trucks manufactured for the 2007 model year and newer. The EPA is still studying whether the highly corrosive ethanol is safe for 2001-06 model vehicles.

But the reality is that unless the 15 percent blend becomes a mandated government standard -- or consumers suddenly demand the higher blend -- it's not likely to be available at your neighborhood gas station in the near future. If ever.

"At this point, I don't think it will affect motorists immediately, because I don't think we'll see E15 anytime soon in Indiana," said Cary Aubrey, bioenergy development manager for the Indiana Department of Agriculture.

Farmer Mike Shuter, president of the Indiana Corn Marketing Council, agreed -- but he also sees the potential impact of the decision.

"What we've seen is this ruling opened the door to more ethanol," he said. "But limiting it to 2007 cars and newer means it won't make much difference right away. Stations won't increase the sales until E15 can be used in older cars, too.

"Eventually, it could increase the market demand for more corn, but not right away."

Still, any regulatory change to ethanol is of importance in corn-rich Indiana, because so much of it is produced here.

Of the 918,000 bushels of corn Hoosier farmers are growing this year, about 27 percent will be turned into ethanol. There are a dozen ethanol plants in the state, and a 13th is under construction.

All the Indiana plants are running near capacity, churning out nearly 1 billion gallons of ethanol a year.

The current standard for ethanol is a 10 percent blend. If, however, that changed to 15 percent, production would have to increase by 50 percent just to keep up with the current demand -- and that could have an effect that goes beyond corn farmers and ethanol producers.

"Ethanol may not be the silver bullet that the world is looking for to replace oil," Aubrey said, "but it is renewable and it is homegrown."

Here's a look at some of the ways the EPA decision could ultimately have an impact.
On the farm

On his family's Delaware County farm near Middletown, Adam Howell scanned the computer screen for the latest price of corn futures on the Chicago Board of Trade.

The price Indiana farmers such as the Howell family receive for their corn has more than doubled since ethanol plants, running 24 hours a day, increased their consumption in the mid-1990s.

Where farmers several years ago thought $2.50 a bushel was good, the prices this week were in the range of $5.30 to $5.70 a bushel.

But it's not clear to what extent ethanol has caused those prices to increase. Many other factors affect the market price. Ethanol producers don't think they have much of an effect.

But Howell said the family's 2,000 acres are well positioned -- literally -- to take advantage. His farm is within delivery distance of four ethanol plants, plus several grain elevators and chicken farms.

"We call around and check the prices that they're paying and go with the best bid," he said. "We've been selling more to the ethanol plants."
Retailers and gas stations

For the gas stations, it's all about what consumers want -- and what the government requires.

"We don't favor or oppose E15 just because it is another 5 percent in the blend. We're waiting to see if the marketplace is interested in 15 percent compared to the 10 percent already in the fuel," said Jim Gentry, director of fuel purchasing for Greenfield-based GasAmerica. The company has 85 fuel stations, mostly in Indiana.

"We've been blending many years, at least since the 1980s, at the 10 percent level," he said, "so we're in favor of renewable fuels."

But for many gas stations, the real concern is cost -- not of the fuel, but of adding or replacing pumps that run about $35,000 each. Besides -- as it stands now, at least -- only vehicles produced since 2007 are allowed to run on E15, so ripping out E10 pumps probably isn't a good option, and there's not always room to simply add pumps.

"That makes us pretty slow to look around and put a pencil to it to figure whether we could install the infrastructure to sell E15 in addition to the other fuels," Gentry said.
Ethanol producers

Construction crews are swarming over a closed ethanol plant near Cloverdale in Putnam County to get it redesigned and ready to reopen in the spring. They're adding new grain storage silos and a state-of-the-art system that uses enzyme chemical reactions to make the alcohol-like fuel.

South Dakota-based POET biofuels, one of the largest ethanol makers in the country and operator of three other plants in Indiana, bought the former Altra plant and is spending $30 million on the redesign. The plant is to reopen with the ethanol output increased from 60 million gallons a year to 90 million gallons, derived from about 30 million bushels of corn.

POET also is a partner in a proposed pipeline that could carry Indiana-made ethanol to the fuel-hungry markets of New York and New Jersey.

The company also is a force in the trade associations that have lobbied Washington hard to expand the uses of ethanol.

"The approval of E15 is an important first step, but more work is still needed so that we can see it in the marketplace, possibly by next year," said David A. Brooks, general manager of the Cloverdale plant. "Ethanol is a renewable fuel and it creates jobs in Indiana, and the production of ethanol keeps the dollars at home rather than spending on foreign oil."

POET is testing prototypes of the next generation of technology in ethanol plants, which could make the fuel from corn cobs, stalks and other bio materials besides corn.

If more ethanol is needed to meet a future demand for E15, Brooks said the existing plants in the state could be expanded rather than building new ones.
Beef and pork producers

The state's 8 million hogs and 850,000 beef cattle gobble up about 15 percent of the state's corn crop.

But just as corn producers have benefited from the increased cost of corn, ranchers are getting hurt -- and the result could be more expensive hamburgers and bacon.

"We are not in opposition to renewable fuels," said Josh Trenary, director of business development for the Indiana Pork Producers Association. "But we think there should be a level playing field."

Agri-business groups such as the beef and pork associations complain about the size of government subsidies that mean billions of dollars to the ethanol industry so the plants can pay higher prices for corn.

"Corn is a big component of our feed. And it eats into our (profit) margins when the price goes up," Trenary said. "When you see the prices up to $5.66 a bushel yesterday, you have to think part of it is in response to the news that the ethanol blending standard could be moving up."

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